When One Program Devours Another

Tip jars are usually simple. But this one, encountered in the passenger food gallery at Austin’s Bergstrom International airport, was different. A sign tucked into the jar read:

This is our health care plan.

If the ice cream shop had any workers over age 30, they weren’t visible. For these young workers employer provided health insurance didn’t exist. If they had a problem, well, maybe the tip jar would help some.

I remembered the sign late last week as we all learned what a sweet deal the new Medicare premium increase is for seniors. After two years of no increases in Medicare Part B premiums, the standard monthly premium will rise to $99.90 a month from $96.40 a month. That’s a 3.6 percent increase, only $3.50 a month.

It’s hard for older people to complain about those shoes, particularly when surrounded by so many with no feet. You won’t hear a peep from me.

The increase will not be a burden on Social Security benefits. The average Social Security recipient was receiving $1,082 a month (in August) and the average monthly increase next year will be $39. With only $3.50 of that $39 going to the higher Medicare premium, retirees are getting a respite from having Medicare premium increases gobble up much of their benefit increases. The net increase, $35.50 a month on an increased benefit of $1,121 amounts to nearly 3.2 percent.

This is a big change from the last decade.

Then, Medicare premiums rose much faster than Social Security benefits. They took an ever-larger share of retiree income. A Congressional Research Service paper by Alison M. Shelton, “The Impact of Medicare Premiums on Social Security Beneficiaries,” tells us that while Social Security benefits grew by 31 percent from 2001 to 2010, Part B premiums grew by 121 percent. As a consequence, a retired median income worker saw Part B premiums as a share of retirement benefits rise from 4.6 percent in 2000 to 8.5 percent in 2010.

So 2012 looks like a great year for retirees, one where Medicare costs won’t be squeezing retirement benefits.

We could also wonder if it is reasonable to get worked up about medical insurance premiums going from 4.6 to 8.5 percent of benefit income over the last decade. A lot worse has happened over the last ten years. In the context of those miseries, complaining about Medicare premiums is a bit like being inconvenienced by the absence of bartenders in the last hours of the Titanic.

Sadly, 2012 is only a reprieve. Things look a lot worse for young workers when they eventually retire. A recent report from the Employee Benefit Research Institute notes that while 60 percent of workers had health insurance in their own names in 1996, the percentage had fallen to 55.3 percent by July of 2010. Add the unemployed and health insurance is “iffy” at best. For today’s young workers getting health insurance is like playing a devastating game of musical chairs: More health insurance coverage is removed each time the economic music stops.

And what about their Medicare?

Well, the Congressional Research Service paper paper estimates that Part B premiums as a percentage of initial benefits will rise to about 22 percent over the next 65 years. Worse, retirees now and in the future will also have Part D premiums to pay. Those premiums don’t have the “hold harmless” provision that froze Medicare Part B premiums for most retirees over the last two years. Instead, Part D premiums can just rise.

The CRS paper estimates that the combination of Part B and D premiums as a percentage of initial retirement benefits will rise to a whopping 31 percent over the same period.

Today, young workers face decades of uncertainty over health insurance. It will be capped by a retirement in which Medicare has devoured much of Social Security as a retirement program. It will devour even more if some of the “reform” proposals for Social Security get written into law. These reforms, such as adjusting the indexing method for wages or increasing the age for full retirement benefits, will burden the young, not the old.

Can anything be done about this? Perhaps. Only if all of us, particularly young workers, pay attention to later as well as now.